The factory of the Hung Long Garment and Service JSC in My Hao District, Hung Yen Province. Vietnam's PMI dropped to a record low in March due to the Covid-19 outbreak - PHOTO: VNA

HCMC – The Covid-19 outbreak had a strong negative effect on the Vietnamese manufacturing sector in March, with the Vietnam Manufacturing Purchasing Managers’ Index (PMI) dropping to a nine-year low.

According to a report released by IHS Markit today, April 1, business conditions had deteriorated to the greatest extent since the survey began in March 2011 amid record falls in output, new orders and employment. Firms also scaled back purchasing activity and inventory holdings, while severe disruption to supply chains was reported.

The PMI fell sharply to 41.9 in March from 49.0 in February, signaling a steep decline in the health of the manufacturing sector -- the most marked decline in more than nine years of data collection so far. The deterioration surpassed the previous record seen in July 2012.

The Covid-19 pandemic led to substantial declines in both new orders and production in March. Both fell at the sharpest rates in the survey's history, with total new business decreasing at a broadly similar pace as new export orders.

Some 42% of respondents saw manufacturing production fall at the end of the first quarter. Steep reductions were registered across each of the consumer, intermediate and investment goods sectors.

A severe drop in new orders as a result of Covid-19 led firms to lower their staffing levels. Employment fell markedly, for the second month running. Despite job cuts, firms were still able to reduce their backlogs of work given the extent of the decline in new business.

Manufacturers also looked to reduce their purchasing activity in March, with input buying down at a record pace. An unprecedented fall in stocks of purchases was signaled as a result.

Despite a lack of demand for input materials, suppliers' delivery times continued to lengthen. Vendor performance worsened to the greatest extent in the survey's history as the pandemic disrupted supply chains. Delays from Chinese vendors were mentioned in particular.

Input costs rose marginally in March, at the slowest pace in four months. Where input prices increased, panelists linked this to a scarcity of raw materials. On the other hand, a lack of demand for input materials and lower oil prices led some respondents to record a drop in input costs.

Meanwhile, output prices decreased sharply, to the greatest extent recorded since July 2012. Business sentiment dropped to its lowest since this series was added to the survey in April 2012 amid concerns around the effects of the fast-spreading coronavirus, which causes Covid-19 disease.

More than one-quarter of firms predicted output will fall over the coming year. However, just under 39% of respondents expected production to be higher than the current levels, with a recovery anticipated once the outbreak is brought under control.

Andrew Harker, economics director at IHS Markit, said, “Unsurprisingly, the Covid-19 pandemic had a severe impact on the Vietnamese manufacturing sector in March, with PMI data signaling the worst decline in business conditions since the survey began just over nine years ago.”

Many of the survey's variables hit record lows and business confidence tumbled. The key issue now is how long it will take for the global community to bring the pandemic under control. Once this occurs, manufacturers predict a rebound in production.